Harvey Norman facing second strike and possible board spill

Harvey Norman executive chairman Gerry Harvey has mounted a spirited defence of the retailer's board structure and executive remuneration ahead of a possible second strike and spill motion at the annual meeting on Tuesday.

The Australian Shareholders Association has advised shareholders to vote against the remuneration report, citing unsuitable hurdles for short term and long term incentives and a lack of independent directors on the nine-person board.

If more than 25 per cent of shareholders vote against the remuneration report again this year, after a first "strike" last year, it would trigger a vote to spill the entire board, including Mr Harvey and managing director Katie Page.

Mr Harvey defied shareholders to vote against the remuneration report, saying Harvey Norman's executive pay was lower than that at 70 to 80 per cent of similarly-sized and smaller companies.

"If you strike against us you'd have to strike against 70 or 80 per cent of them," Mr Harvey told Fairfax Media on Monday. "I'd be extremely disappointed if someone has a strike against our remuneration report."

Mr Harvey owns 30 per cent of Harvey Norman and does not vote his shares on the remuneration report. However, industry observers believe he would vote his shares in the event of a spill motion.

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The family of co-founder Ian Norman, who died last year, would also likely vote its 16.5 per cent stake against a spill motion, guaranteeing its failure. Non-executive director Chris Brown is executor of the Norman estate and a long-term adviser to the company.

Mr Harvey said he had no plans to change hurdle rates or the make up of short term and long-term incentives, saying the company had attempted to comply with best practice on executive remuneration.

The ASA says Harvey Norman's STIs are all paid in cash, as opposed to a mix of cash and shares, and financial criteria account for only 20 per cent of the total award, with 80 per cent subject to non-financial criteria. Further, the use of subjective non-financial hurdles for LTIs do not appear to align the shareholder and management interests.

"We've tried to be as compliant as possible," Mr Harvey said. "If people vote against you when you're trying your best what do you do?"

Mr Harvey also dismissed suggestions that Harvey Norman needed more independent directors, saying it was more important to have directors with retail skills and "skin in the game", pointing to the lack of retail expertise on the boards of several underperforming retailers.

"If (earnings) were down 25 per cent I'd agree with you – let's get rid of the whole board, we're never going to turn it around," he said.

"At the moment Harvey Norman is one of the best performing retailers out there in the market place public or private," he said, pointing to a 27.8 per cent lift in pre-tax earnings in the September quarter and 26.6 per cent net profit growth in 2015.

"Instead of people out there being critical they should take their hats off and say 'you guys are doing a great job'."

The company has defended the investment, saying it is confident the deal will deliver returns. But investors say it is outside Harvey Norman's core competence and highlights the lack of independence on the board.